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Spalter: Spectrum history 101 - When good intentions go wrong

Aug 1, 2013 10:00am

Jonathan Spalter

With the arrival of Prince George in Great Britain, the world is momentarily punch drunk on the great traditions of history. Of course, not all history paints such a bright and optimistic picture. As the saying goes, those who don't learn its lessons are doomed to repeat them.

These are wise words for the Federal Communications Commission to take to heart as it wades into the deep waters of the most high-stakes wireless spectrum auctions in U.S. history. The commissioners understand the sense of urgency around this effort. The FCC itself has warned that the ongoing surge in consumer demand for mobile connectivity threatens to overwhelm existing U.S. wireless capacity.

There also is broad agreement on the public-spirited outcomes desired: Strong, agile U.S. mobile networks; seamless, innovative consumer wireless experiences and choices, as well as a rock-solid foundation for the growth and competitiveness of our information economy.

The debate turns up several degrees, however, when it comes to precisely how these goals are best achieved. In a throwback to the more hands-on regulatory role of the pre-Internet era, some argue that the government's rules should overtly discriminate against certain competitors, excluding them from full participation in spectrum auctions for the express purpose of offering their rivals a leg up.

It's not a new idea. In fact, it's been pursued many times around the world. Now, a paper by the Analysis Group's Robert Earle and David Sosa, in conjunction with Mobile Future, explores the outcomes of these real-life case studies. The results offer a sobering account of good policy intentions gone wrong, and the resulting high costs to consumers and innovation economies around the world.

Among the cautionary tales:

U.S. auctions for PCS spectrum in 1994 offered preferential advantages to new entrants, such as bidding credits, below-market financing and outright set-asides of wireless capacity. As a result, underfunded companies acquired spectrum and promptly declared bankruptcy, marooning needed mobile capacity for years. In one transaction, the U.S. Treasury wound up recovering just $166 million of the $1 billion owed to U.S. taxpayers. All tallied the delays and lost revenue added up to $70 billion in consumer welfare costs.

Europe fared no better. In Germany, restrictive bidding caps in 2000 idled one third of available 3G spectrum for an entire decade, hobbling the nation's competitiveness. Looking across all six European countries that used preferential auction rules in 2000 and 2001, not one nation has a single additional carrier in their market today. Canada's recent spectrum auction history reveals the same pattern--new entrants artificially propped up by regulators and then quickly overwhelmed by market forces when their venture proved financially unsustainable.

What's the common thread running through all of these experiences? Policymakers with the best of intentions to protect consumers and bolster competition embracing hyper-regulatory tools that consistently proved not only ineffective, but counterproductive.

Fortunately, there is a proven path to pro-consumer, pro-innovation outcomes. Here in the U.S., every significant new entry into the wireless market since the mid-nineties arrived either via spectrum repurposing or a market-based transaction--not by preferential, "thumb-on-the-scales" auction design. The good news? Both are areas of intensive activity today.

President Obama has called on federal agencies to take a careful look at their underutilized spectrum assets and make timely strides to consolidate their holdings, so more of this capacity can be repurposed to help expand the wireless web. Just last week, the Pentagon outlined a proposed roadmap for making highly coveted spectrum in the 1755-1780 MHz band available for auction and licensing in the near-term. More progress should follow.

Wireless companies also are working vigorously through the marketplace to ensure they have adequate spectrum to serve their customers. We see the headlines virtually daily, from the Sprint/Clearwire/Softbank deal, to T-Mobile's acquisition of MetroPCS, to AT&T's purchase of Leap Wireless and Dish Network's pursuit of LightSquared.

From the dawn of mobile, U.S. wireless has thrived in an environment where regulation has taken a vigilant but humble role in the back seat, allowing entrepreneurs and innovators to respond directly and quickly to the wants and needs of consumers. This approach has yielded consistent and positive results for both mobile customers and our economy.

At this pivotal crossroads for U.S. mobile innovation, it's important that our government heeds these lessons of history.

Jonathan Spalter, chairman of Mobile Future, has been founding CEO of leading technology, media, and research companies, including Public Insight, Snocap, and Atmedica Worldwide. He served in the Clinton Administration as a Director on the National Security Council.